Standards

Concepts

COMPELLING QUESTION

Should the federal government increase the federal minimum wage?

Increasing the minimum wage is a controversial issue in the 2016 election. Students will understand contrasting arguments on the impact of raising the minimum wage. They will also gain an understanding of the direct relationship between hourly wages at work and economic decision-making when navigating a family budget.

This lesson introduces students to the federal minimum wage. The lesson begins by providing background information from the history of the policy. Students will explore the debate on the impact of the wage floor on markets and participate in a decision-making simulation on the hard choices many people at this income level have to endure.

Introduction

The federal minimum wage was introduced in 1938, at the tail end of the Great Depression, through the Fair Labor Standards Act. It was initially set at 25 cents an hour and has been raised 22 times by Congress, the last time being 2009 with a bump from $6.55 to $7.25 an hour. According to the U.S. Labor Department, 3.3 million workers earned the minimum wage or less in 2013. One million five hundred thirty two thousand hourly workers earned the federal minimum while nearly 1.8 million more earned less than that because they fell under one of several exemptions (tipped employees, full-time students, certain disabled workers and others). Today, 50 percent receiving these wages are in the food preparation and service sector of the labor force. According to the Bureau of Labor Statistics (BLS), 62 percent are women and 55 percent are age 25 or older. In addition, 58 percent earning the minimum are part-time workers.

The real purchasing power of the minimum wage has been declining since 1968, despite periodic nominal increases. Thus, the challenge to live while earning this wage has never been greater. But some opponents to the minimum wage claim an increase of the federal minimum wage to a proposed $10.10 an hour will result in greater costs than benefits. The impact on small business budgets would compromise the sustainability of a future and many companies would seek alternatives to higher priced labor. Recently, some people have pointed to the growing number of states and municipalities addressing this issue and wonder why there needs to be a national debate at all.

Learning Objectives

Describe the impact of minimum wage laws on workers.

Analyze the effect an increase in the minimum wage would have on businesses.

Understand the difficult choices a minimum wage worker has to make in managing their household budget.

Resource List

Process

Ask students: How many of you have jobs in the private sector working in retail, fast food, or some other formal position in the employment of a business? (Answers will vary, but hopefully several will raise their hands.)

Ask the students who confirmed employment: Without revealing your wage, how many believe you could afford to support yourself and a family on a full-time income at your current hourly rate? (Answers will probably be no.)

Ask the students: Why couldn’t a family be financially supported at wages earned in the fields of retail or fast food? (Possible answer might be because the cost of living would be too high to manage on such a small income.)

Show Slide 2 and introduce the students to the origins of the federal minimum wage. Ask students: Why were the conditions during the Great Depression suited for the pressure put upon labor in the workplace? (Many workers sought employment among so few jobs that they would be willing to work under poor working conditions.)

Show Slide 3. Explain to students that while the minimum wage has been increased periodically throughout its history, the increases ceased to keep up with the rising cost of living after 1968. The real value of today’s minimum of $7.25 per hour has diminished to late 1950s levels as the increases in the nominal wage have failed to keep up with the rising cost of housing, food, transportation, and healthcare.

Show Slide 4. Confirm with the students what was suggested in the opening questions that the majority of minimum wage workers are in the fast food industry and similar retail positions. While it may not be surprising that the majority of workers at this wage are women, it may be interesting to note that the majority are over the age of 25.

Show Slide 5. Convey to the students that states are not required to pay the federal minimum wage and are free to raise it to a higher level. Ask students: Why might California and New York have passed legislation recently to raise the state-wide minimum wage to $15per hour by 2022? (Possible answers might be that the high cost of living in those states has made it nearly impossible for many laborers to meet basic living expenses, both states have executive and legislative bodies that draw a lot of support from factions that advocate for a living wage.)

Show Slide 6 which provides a set of instructions. The students will see a set of arguments, on Slides 7-9, for and against raising the federal minimum wage rate from its current $7.25 to a proposed level of $10.10 an hour. Before the response to the position is revealed, the students should be given time to generate their own thoughts on why the position might be valid. Once the discussion has been exhausted, reveal the possible answer for additional support.

Show Slide 7. Ask the question: Will raising the minimum wage spur income and job growth? After discussion by the students, reveal the points on the slide to continue the discussion:

Increases in income for low-wage workers would be completely dedicated to consumption as they try to catch up to the cost of living, which will stimulate the economy.

Once the increases and decreases in income for all workers are taken into account, overall real income would rise by $2 billion.

While income might increase, some workers might lose. The Congressional Budget Office (CBO) has predicted that this proposed wage increase could cost the economy 500,000 jobs.

A 2014 survey of 1,213 business owners found that 39 percent of respondents would reduce future hiring. Among those employers who currently pay the minimum wage, 54 percent would reduce future hiring. This may result in lower growth in the future.

Show Slide 8. Ask the question: Will raising the minimum wage solve the poverty problem in the United States? After discussion by the students, reveal the points on the slide to continue the discussion:

Based on 2015 poverty thresholds, an increase to $10.10 per hour would elevate a single parent with two children out of poverty.

According to a 2014 CBO report, this would lift 900,000 people out of poverty.

While some people in poverty benefit from an increased minimum wage, 57 percent of poor families with heads of household ages 18–64 have no workers, and so would not benefit.

Some workers are poor not because of low wages but because of a low number of work hours available to them.

Many low-wage workers, such as teens, are not in poor families.

If wages were simply raised to $10.10 with no changes to the number of jobs or hours, only 18 percent of the total increase in incomes would go to poor families

Show Slide 9. Ask the question: Should the minimum wage only apply to adults over the age of 18? After discussion by the students, reveal the points on the slide to continue the discussion:

Tell students that several states and municipalities have either implemented a two-tier minimum wage or are considering it.

Many teens do not have an abundance of experience and skills. By allowing a lower wage, teens – particularly in the food and retail areas – can gain experience for future jobs. This increases the human capital of younger workers.

However, teens that desperately need higher wages to help support their families may be hurt. Adults may also be hurt when they lose their jobs to lower paid teens.

Current policy allows employers to pay lower wages to younger workers for a limited period, so this program already exists to some degree.

Instructions for this segment of the lesson can be displayed on Slide 10. Distribute a copy of Activity 1 and Activity 2 to each student. In Activity 1, ask students to read the scenario representing the typical life of a laborer earning the current federal minimum wage. The financial details of money earned and spent are highlighted in the reading. Using the information from Activity 1, on Activity 2, create a budget for this individual tracking the income from work and food stamps (Supplemental Nutrition Assistance Program known as SNAP) and the expenses revisited every month. Calculate the totals and the amount left for all that has been left out of the story.

Once the students have completed Activity 2, the answers can be revealed by displaying Slide 11. Total net monthly income is $1,365.12 and monthly expenses should total $1,360.50, leaving a surplus of approximately $1 a week.

The instructions for this step can be displayed by showing Slide 12. Distribute a copy of Activity 3 to each student. Ask students to create a budget for the same individual if the federal minimum wage were $10.10 an hour. Tell the students to keep everything the same with the exception of the area of food. The SNAP benefit is reduced from $378 to $333 because of the increase in income. While the grocery expenses will remain the same, the out of pocket expenses will have to be adjusted to make up for the shortfall. Tell the students that the gross income from 38 hours at $10.10 an hour is $383.80 a week and the net income is $343.77. The monthly net is $1,375.08.

Once the students have completed Activity 3, the answers can be revealed by displaying Slide 13. Total monthly income is $1,708.08 and monthly expenses should total $1,405.50, leaving a surplus of approximately $75 a week.

Distribute a copy of Activity 4 to each student. Display Slide 14. Tell the students they will be given ten scenarios. They should provide a brief explanation of how they might react to each scenario if they earned $7.25 per hour or if they earned $10.10 per hour. Tell the students they should have both the budget from Activity 2 and the one from Activity 3 in front of them as they seek trade-offs in managing the new challenge in the lives they are role playing. Treat each dilemma as an isolated event and go back to the original budget before addressing the next one. Ask the students to write their responses on Activity 4 suggesting the trade-off to be made while managing as a single parent with two children.

Display the scenarios on Slides 15 and 16, which depict ten scenarios of unexpected life events.

Do not tell landlord. Try to fix it yourself and hope he doesn’t notice.

Admit to it and pay for it.

9

Wait for the eviction notice. Move in with family or shelter.

Pay the additional rent, take a couple hours off from work to seek legal advice.

10

Decline when the hat is passed.

Contribute, believing that this charity may return in kind in the future.

Conclusion

Review the main points of the lesson with the students:

The minimum wage is a controversial issue. It raises the wage for many people, resulting in higher incomes and less poverty.

However, the impacts may be uneven, with some losing their jobs as businesses cut back to save on employment costs.

The current minimum wage is not high enough to support a family. Workers on a minimum wage salary are faced with difficult choices when budgeting and dealing with emergencies.

Assessment

Use the following questions to review the key points of the lesson.

Why was a federal minimum wage law established originally? (An abundance of workers and lax child labor regulations allowed employers to exploit through extremely low wages and inconsistent compensation systems.)

What is one argument that supports the expansion of the minimum wage today? (It provides for a degree of economic independence for hourly workers and reduces poverty.)

What is one argument against the expansion of the minimum wage today? (It dramatically increases costs for small businesses and may lead employers to seek alternatives to labor reducing the number of entry-level jobs for low skilled workers.)

How is a minimum-wage worker’s life changed as a result of lifting the minimum wage from $7.25 per hour to $10.10 per hour? (The additional income provides greater flexibility to respond when the unexpected occurs, it allows for some savings for the future and emergencies, it reduces the excessive costs of alternative financial services by allowing the individual to become banked.)